Burberry reported the 2nd consecutive drop in earnings last Wednesday, with a 10% drop in adjusted pretax profit. Sales in Hong Kong have fallen more than 20% for three consecutive quarters. The company claimed to look into creating a more efficient retail operation by plan to reduce £100 million cost, which will be implemented over the next two years. The company also plans to cut 15-20% of its products across all its range and eliminate about 100 jobs.
Commenting on the company’s plan, Jack Chuang, Partner, OC&C Strategy Consultants, said:
“Saving cost might help with Burberry’s short-term financial performance, but we don’t think it will help solve the fundamental problems it has in Asian market.
Among all the luxury brands, Burberry is almost the one with most significant price gap between Asian and European markets. Price in mainland China is almost 40% higher than in UK, while in Hong Kong, it is also 20% higher. And while a lot of luxury brands have started to think about price equalisation (Chanel, Cartier, Dior did it last year and Valentino did it recently) , Burberry raised price in China again in May (5-10%).
If they continue this type of strategy, we do suspect more and more domestic demand will shift to the overseas market through travelling or cross-border ecommerce and no matter how they save cost (whether limited to Hong Kong or globally), they are going to have problems in Asia.”
(Source: OC&C Strategy Consultants)